Final Regulations on Basis Consistency Reporting on Inherited Property

Executive Summary  

Final regulations regarding Internal Revenue Code Sections 1014(f), 6035, 6724 and 6662 are in effect for estate tax returns filed after Sept. 17, 2024. The following highlights some of the significant revisions made in response to comment letters sent related to the proposed regulations.   

Applicability 

There is no requirement to file Form 8971 if an estate is less than the basic exclusion amount (for 2024 - $13,610,000 and 2025 - $13,990,000). There is also no requirement to file Form 8971 if an estate files an estate tax return only for portability, generation-skipping transfer tax exemption allocation or protective claims.   

Removal of Zero-Basis Rule for Unreported Basis 

The proposed regulations provided that assets that were not reported on a decedent’s estate tax return would have a zero basis for beneficiaries receiving those assets. The final regulations eliminated that provision. Beneficiaries still do not have a course of action for assets they believe to be misvalued on the estate tax return. The IRS acknowledges in the preamble that the final regulations serve only to deter willful nonreporting and are considering future guidance for valuation disputes.  

Reporting Due Dates – 30 Days or January 31?

Form 8971 is still due 30 days after the estate tax return is filed. Under the proposed regulations, executors were required to report any assets a beneficiary may receive, even if the property had not been distributed by the Form 8971 due date. This confused beneficiaries who did not understand why their Schedule A reported more assets than they were going to receive. This also disclosed more information to beneficiaries than what was needed, causing potential conflicts and litigation. Executors are now only required to report assets when they are acquired, as defined below, by the beneficiary. Assets acquired on or before the estate tax return is filed are required to be reported on the Form 8971 and Schedule A(s) by the 30-day deadline. Assets acquired after the estate tax return is filed should be reported by January 31 in the year after acquisition.    

New Definition of “Acquiring” 

Under Reg. Section 1.6035-1(c)(4), acquired property is defined as when title vests in the beneficiary or when the beneficiary otherwise has sufficient control. This can occur when property is distributed by the executor or trustee, by contract or by operation of law including all assets held in a revocable trust. The change removes the executor’s need to report all assets the beneficiary “may” receive and aligns with the common understanding of “acquired.”  

Subsequent Reporting Requirements 

Individual beneficiaries are not required to report subsequent transfers of inherited assets.  

Executors are required to submit supplemental statements to individual beneficiaries reporting actual assets acquired if the initial filing included incorrect assets, omissions or the asset’s final value changes. The due date of these supplemental statements is 30 days after the information is available to the executor. 

Trustees are required to file supplemental statements for trust funding and all distributions. For example, if a trust is funded 60 days after the estate tax return filing and the trust makes distributions of the inherited assets annually to beneficiaries, then the trustee is required to file supplemental statements annually by January 31.  

The initial basis in consistent basis property may be adjusted pursuant to the operation of Section 1014 or other provisions of the Internal Revenue Code governing basis.  

The above information is not all encompassing of the finalized regulations.